Q. How much down payment do I need?
A. In Canada since February 2016, there are new down payment regulations. For a purchase price under $500,000 the minimum down payment is 5%.
i.e. For a purchase price of $500,000, the minimum down payment is $25,000.
For a purchase price over $500,000 the minimum down payment is 5% of the first $500,000 and 10% of the remainder.
i.e. For a purchase price of $700,000, the minimum down payment is $45,000.
Q. Why would I put more than the minimum down payment required?
A. In Canada if you do not have 20% down payment, you are required by law to pay for mortgage insurance. This insurance is paid by the lendee (client) and protects the lender (source of funds).
For example, if you want to purchase a house with a purchase price of $500,000 and you want to put 10% down, you will be required to pay 2.4% of your mortgage amount. Mortgage amount = $450,000 x 2.4% = $10,800 paid towards mortgage insurance. This amount is typically added onto the principle amount of your mortgage and will follow your mortgage terms and amortization period.
Q. So if I have enough down payment will I qualify for a mortgage?
A. Not necessarily, yes you need the minimum down payment but you also need the income verification to support the monthly payments of your mortgage. You need to be able to prove that you can pay those mortgage payments.
Q. What is a conventional mortgage?
A. A conventional mortgage is a mortgage in which you put down at least 20% of the purchase price. This type of mortgage usually does not require mortgage loan insurance.
Q. How does bankruptcy affect qualifying for a mortgage?
A. Depending on the circumstances, some lenders will still approve your application.
Q. How will child support affect my mortgage qualification?
A. If child support and alimony are paid by you, this amount will be deducted from your annual income and will reflect the amount that you qualify for. If child support and alimony are paid to you, this amount will be added to your annual income and will increase the amount that you can borrow for your mortgage.
Q. Can I use gifted money for my down payment?
A. Yes. Along with the funds you need a gift letter which states that the sum of money is an actual gift and does not need to ever be repaid. Depending on if your mortgage requires mortgage insurance or not, some lenders require the gifted funds to be in your bank account prior to the approval being sent.